WASHINGTON, Dec 20 (Reuters) - The U.S. economy grew fasterthan previously thought in the third quarter, helped by exportsand government spending, but a sluggish world economy andbelt-tightening by Washington looks set to put on the brakesagain.

Other data on Thursday showed factory activity in themid-Atlantic region picked up this month, while home resales inNovember were the best in three years, indicating the economyretained some vigor early in the fourth quarter.

However, a rise in first-time applications for unemploymentaid last week suggested job growth remains modest.

Gross domestic product expanded at a 3.1 percent annual ratein the third quarter, the Commerce Department said. It was thefastest pace since late 2011 and more than double the secondquarter's 1.3 percent rate.

A month ago, the department said GDP grew at 2.7 percentpace during the July-September period.

Millan Mulraine, a senior economist at TD Securities in NewYork, said the factors that boosted growth in the third quarterwould not carry through the reminder of the year.

"The fact that we had an upward revision means that it's ahigher hurdle in the fourth quarter to get above the currentbest case of 1 percent (growth)," he said.

Economists say businesses have hunkered down in the currentquarter out of worry that currently stalled budget talks inWashington will fail to steer clear of a $600 billion "fiscalcliff" that could tip the economy back into recession.

Even if a deal is reached to avoid the brunt of the blow, atighter fiscal policy and cooling global economy are stilllikely to weigh on U.S. growth in coming quarters.

A Reuters poll of economists earlier this month showed amedian forecast for GDP growth in the fourth quarter of just a1.2 percent annual pace. Economists expect GDP to expand just1.9 percent next year.

In a second report, the National Association of Realtorssaid sales of previously owned homes surged 5.9 percent inNovember to a seasonally adjusted annual rate of 5.04 millionunits. It was the fastest sales pace since November 2009 andconfirmed a housing recovery was strengthening.

Separately, a factory gauge from the Philadelphia FederalReserve Bank showed activity in the mid-Atlantic region turnedup this month after slipping in November, a finding that shouldease fears of a hard landing for U.S. manufacturing.

"The sky is not falling on manufacturing," said Robert Dye,chief economist at Comerica in Dallas. "The contribution fromhousing-related manufacturing is making a difference."

MODEST JOB GROWTH

In a fourth report, the Labor Department said initial claimsfor jobless benefits increased 17,000 to a seasonally adjusted361,000 last week, in the low end of the range they held beforeSuperstorm Sandy struck in late October.

The data covered the survey period for the government'sreport on December nonfarm payrolls and suggested another monthof modest employment growth. Job gains so far this year haveaveraged 151,000 per month, not enough to significantly lowerunemployment.

U.S. financial markets ignored the data as investors focusedon the lack of progress in budget talks in Washington, whichkept stock markets flat.

In the third quarter, the economy was also buoyed by a biginventory build up, which added 0.73 percentage point to GDPgrowth. Economists expect inventories to weigh in the fourthquarter.

"It could be that businesses will want to continue toaccumulate inventories but that seems unlikely," said DavidBerson, chief economist at Nationwide Insurance in Columbus,Ohio. "It's the same with federal government spending, it's veryunlikely to continue."

While growth in consumer spending, which accounts for about70 percent of U.S. economic activity, was raised by 0.2percentage point to a 1.6 percent rate, it was little changedfrom the second quarter's pace.

Exports grew at a healthy 1.9 percent rate, rather than the1.1 percent reported a month ago, while imports fell for thefirst time in more than three years in a sign of sluggishdomestic demand.

Government spending was revised to a 3.9 percent growth ratefrom 3.5 percent, with spending by state and local governmentgrowing for the first time in three years.

Taking out the boost from inventories and government, demandin the economy remained weak, rising at just a 1.5 percent rate-- the slowest since the end of 2009 -- and a step down from the1.9 percent pace logged in the second quarter.

"It suggests that growth this quarter could be somewherebetween 1.2 and 1.5 percent, if we don't have outsizedcontributions from government and inventories. That's verysuboptimal growth," said Berson.